CALGARY, ALBERTA -- (Marketwire) -- 02/19/13 -- The Alberta government's inability to hold government spending to the rate of inflation plus population growth cost it $22 billion since 2005, says a new report from the Fraser Institute, an independent, non-partisan Canadian think-tank.
"Alberta's approach to spending in recent years can be compared to a worker who earns a Christmas bonus one year and assumes that money will be there every year," said Mark Milke, Fraser Institute senior fellow and author of Alberta's $22-Billion Lost Opportunity.
Milke's report examines the history of Alberta budgets starting in fiscal year 2005/06 up until 2012/13. He concludes that while successive Alberta governments paid lip service to the need to control spending and plan for fluctuating resource prices, they failed to act. A review of actual choices governments made shows a pattern of increased program spending well above the rate of inflation and population growth and as a result, ballooning deficits.
The report calculates that after inflation and population growth are factored in, Alberta program spending rose to $10,526 per person in 2012/13 from $9,594 in 2005/06.
In total, if Alberta's governments had held program spending increases to the rate of inflation plus population growth since 2005, the province would have spent $22.1 billion less than it did. In the current year alone, program spending is $3.6 billion higher than it would have been if spending increases matched the rate of inflation plus population growth since 2005. Additionally, the province would have run a surplus budget in every budget year since, including during the 2008/09 recession.
"The province has been repeatedly warned by numerous economists about the hazards of budgeting based on boom-time revenues," Milke said.
"As a result of ignoring this advice, Alberta is now in its fifth consecutive deficit year and about to produce its sixth red-ink budget."
A critical problem with Alberta budgets highlighted by Milke is the lack of disclosure on the cost of compensation for the broader public sector beyond just direct government employees, and what portion of program spending is devoted to such costs. Milke points out that the Commission on the Reform of Ontario's Public Services estimated labour costs account for half of all government program spending in Ontario.
"Assuming that labour costs also account for 50 per cent of Alberta government program spending, then it's easy to see where costs are ballooning, especially in light of the generous wage settlements given to teachers and nurses and the government's agreement in 2007 to assume responsibility for the remaining one-third liability in the Alberta Teachers' Pension Plan," Milke said.
While the report also highlights other questionable spending commitments such as the $2 billion for carbon capture and storage and a $100 million increase in corporate welfare, it concludes that the provincial government must be more vigilant in controlling labour costs because of their significant share of the annual budget.
The report highlights a wide body of research showing government employees tend to earn more than their private-sector counterparts. A Fraser Institute study released in January found that government employees in Alberta earned on average 10 per cent more than people doing similar jobs in the private sector.
Milke concludes that if the Alberta government is serious about balancing its budget, then it should consider the following options:
-- Provide annual estimates of public sector compensation costs in the broad public sector relative to provincial government expenditures;-- Review overall public sector compensation with an eye to bringing such compensation in line with the private sector;-- Freeze overall spending growth for a time to make up for past increases that far outran population and inflation growth in Alberta; and-- Commit to holding any future program spending increases to the rate of inflation plus population growth.
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The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of 86 think-tanks. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit www.fraserinstitute.org.
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